Is Tesla Motors “Ready for Prime Time”?

On June 29, electric car maker Tesla Motors Incorporated raised $226.1 million through the first IPO by a U.S. automaker since 1956. Investors were apparently not intimidated by the uncertainties that lay ahead for the Silicon Valley startup, whose 256-page prospectus includes a 41-page discussion of the risks.

Many of the risks are common ones that any automaker might face and their inclusion in the disclosure document was routine. On the other hand, some of the risks discussed in the prospectus are reminders of exactly how much ground the fledgling automaker has to cover as it aspires to become a major player in the emerging electric vehicle market.

Detroit-based 2953 Analytics is an industry research and forecasting company that sees a real opportunity for Tesla to succeed. Analyst Jim Hall said skeptics who think of Tesla as “a bunch of crazies who just built a car is selling them short” are underestimating the company. He says the company’s accomplishments thus far are impressive. “They’ve done something that is hard to do,” he said.

But for all the progress it has made in the last couple of years, Tesla realizes there are still a number of hurdles to be cleared and they are included in the company’s prospectus.

For starters, Tesla has reported quarterly losses for every quarter since the company was formed in 2003. The company currently produces only one model, the Roadster, with a base price of $129,000 but plans to become profitable with the upcoming launch of its Model S which it hopes to sell for around $56,000.

The company has no set time frame for the launch of the more economical model and, in its prospectus, Tesla warned investors that it expects to continue losing money in the interim. In fact, it expects the financial losses to be significant.

Tesla is designing the Model S to allow owners to exchange the vehicle’s battery packs for fully charged ones once they are depleted. That will require a network of third-party partners which does not yet exist.

Tesla also has a narrow window in which to close on its purchase of the now idle New United Motor Manufacturing Incorporated (NUMMI) facilities in Freemont, California. If Tesla is unable to meet the December 31 deadline, the deal will be terminated. Toyota and Tesla have announced a joint venture to produce electric vehicles at NUMMI.

Tesla faces a number of challenges related to establishing its dealer network. Some states have laws may keep the automaker from establishing dealers within their borders because of Tesla’s model that requires dealers to own their stores.

Tesla also has no plan to address their customer’s service needs once it begins mass producing the Model S. The company currently dispatches its service technicians to service its vehicles at their owner’s locations, primarily in California.

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